Perilous Reversal Stock: Vale (VALE)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Vale ( VALE) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Vale as such a stock due to the following factors:

VALE has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $476.0 million.

Vale S.A., together with its subsidiaries, engages in the research, production, and sale of iron ore and pellets, nickel, fertilizer, copper, coal, manganese, ferroalloys, cobalt, platinum group metals, and precious metals in Brazil and internationally. The stock currently has a dividend yield of 2.2%. VALE has a PE ratio of 7.5. Currently there are 3 analysts that rate Vale a buy, 6 analysts rate it a sell, and 6 rate it a hold.

The average volume for Vale has been 30.8 million shares per day over the past 30 days. Vale has a market cap of $41.4 billion and is part of the basic materials sector and metals & mining industry. Shares are down 1.8% year-to-date as of the close of trading on Tuesday.

TheStreet Quant Ratings rates Vale as a sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

VALE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 41.91%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, VALE is still more expensive than most of the other companies in its industry.

The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, VALE SA underperformed against that of the industry average and is significantly less than that of the S&P 500.

VALE SA reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, VALE SA increased its bottom line by earning $0.13 versus $0.01 in the prior year. For the next year, the market is expecting a contraction of 107.7% in earnings (-$0.01 versus $0.13).

VALE's debt-to-equity ratio of 0.67 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.85 is weak.

Regardless of the drop in revenue, the company managed to outperform against the industry average of 18.4%. Since the same quarter one year prior, revenues fell by 15.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.